In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-1949

DANIEL AVILA, on behalf of himself

and all other persons similarly situated,

Plaintiff-Appellant,

v.

CITIMORTGAGE, INCORPORATED,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 13 C 3566 — Ronald A. Guzmán, Judge.

____________________

ARGUED SEPTEMBER 29, 2014 — DECIDED SEPTEMBER 4, 2015

____________________

Before EASTERBROOK, WILLIAMS, and SYKES, Circuit Judges.

SYKES, Circuit Judge. Daniel Avila alleges that CitiMortgage, Inc., violated a fiduciary duty and breached its mortgage agreement with him by using the payout from his

homeowner’s insurance policy to pay down his loan rather 

than repair his damaged house. The district court dismissed 

Avila’s suit—a proposed class action—for failure to state a 
2 No. 14-1949

claim, reasoning that (1) his allegations do not support a

fiduciary duty on CitiMortgage’s part; and (2) Avila was 

barred from pursuing his contract claim because he had 

materially defaulted on his own contractual obligations by 

missing several mortgage payments prior to CitiMortgage’s

purported breach.

We agree with the district court on the first point: Avila’s 

allegations of a fiduciary relationship are inadequate as a 

matter of law. But his claim that the mortgage agreement 

remained enforceable after his missed payments is plausible

in light of the agreement’s structure and the remedies it

prescribes in the event of default. The breach-of-contract 

claim should not have been dismissed.

I. Background

Avila bought his Chicago home in 2005 with a $100,500 

mortgage loan from CitiMortgage. Five years later, a serious 

fire made the house uninhabitable. Avila filed a claim with

his homeowner’s insurance carrier, which paid out just over 

$150,000. Pursuant to the terms of the mortgage agreement, 

CitiMortgage took control of the insurance proceeds. Avila 

selected a contractor, and CitiMortgage paid $50,000 of the 

insurance money to get the restoration underway. CitiMortgage later inspected the work and found that it was of poor 

quality and needed to be redone, but by that time Avila had 

missed several mortgage payments. CitiMortgage then 

applied the remaining $100,000 from the insurance payout

toward Avila’s outstanding mortgage loan. Avila’s home was 

never repaired.
No. 14-1949 3

The parties’ respective obligations regarding homeowner’s insurance are spelled out in section 5 of the mortgage 

agreement.1 Avila was required to obtain a homeowner’s 

policy that included a standard mortgage clause and named

CitiMortgage as a loss payee.2 CitiMortgage had the right to 

disapprove Avila’s choice of carrier, take possession of the 

insurance documents, and demand proof that Avila was 

paying the premiums.

Section 5 also addressed the parties’ obligations in the 

event that damage to the property resulted in an insurance 

claim: 

Unless Lender and Borrower otherwise agree 

in writing, any insurance proceeds ... shall be 

applied to restoration or repair of the Property, 

if the restoration or repair is economically feasible and Lender’s security is not lessened.

During such repair and restoration period, 

Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure that 

the work has been completed to Lender’s satisfaction ... . ... Lender shall not be required to 

pay Borrower any interest or earnings on such 

 1 The mortgage agreement was based on the Fannie Mae/Freddie Mac 

Uniform Instrument for single-family homes in Illinois. 

2 As we discuss in more detail later, “the ‘standard’ mortgage 

clause ... forms a separate and distinct contract between the insurer and 

the mortgagee, the effect of which is to shield the mortgagee from being 

denied coverage based upon the acts or omissions of the insured or the 

insured’s noncompliance with the terms of the policy.” Old Second Nat’l

Bank v. Ind. Ins. Co., 29 N.E.3d 1168, 1175 (Ill App. Ct. 2015).
4 No. 14-1949

proceeds. ... If the restoration or repair is not economically feasible or Lender’s security would be

lessened, the insurance proceeds shall be applied to 

the sums secured by this Security Instrument, 

whether or not then due, with excess, if any, paid to 

Borrower.

(Emphasis added.) Section 5 also provided that CitiMortgage could use the insurance proceeds to pay down the loan 

on the occurrence of any of three additional conditions: if the 

borrower abandoned the property, ignored notice concerning the insurance carrier’s offer to settle a claim, or if 

CitiMortgage foreclosed on the property.

As we’ve noted, CitiMortgage used the insurance proceeds to pay down the loan rather than repair the house, but 

it never claimed that restoration was economically infeasible

or would reduce its security interest. Nor had any of the 

three special conditions described above occurred.

Avila sued CitiMortgage in Cook County Circuit Court

alleging that its actions breached a fiduciary duty and the 

mortgage contract. He sought to represent a class of all 

defaulting CitiMortgage borrowers whose homeowner’s 

insurance proceeds had been applied to their mortgage loans 

rather than home repairs. CitiMortgage removed the case to 

federal court.3

 3 Federal jurisdiction arose under the Class Action Fairness Act, 

28 U.S.C. § 1332(d), based on minimal diversity. After an Illinois-based 

codefendant was dropped, the parties became completely diverse, so 

jurisdiction was also proper under 28 U.S.C. § 1332(a)(1). 
No. 14-1949 5

CitiMortgage moved to dismiss for failure to state a 

claim. See FED. R. CIV. P. 12(b)(6). The district court granted 

the motion, concluding that CitiMortgage owed no fiduciary 

duty and Avila was precluded from bringing a breach-ofcontract claim because his default on his payment obligations preceded CitiMortgage’s alleged breach.4 The dismissal 

order was without prejudice, and Avila twice tried to amend

his complaint. The later iterations of the complaint were also 

dismissed—the last one with prejudice. This appeal followed.

II. Discussion

We review de novo the judge’s order dismissing Avila’s 

complaint under Rule 12(b)(6) for failure to state a claim.

Carmody v. Bd. of Trs. of the Univ. of Ill., 747 F.3d 470, 471 (7th 

Cir. 2014). To survive a motion to dismiss, a complaint must 

contain sufficient factual allegations to state a claim for relief 

that is legally sound and plausible on its face. Ashcroft v. 

Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 570 (2007)). Avila brought state-law 

claims for breach of fiduciary duty and breach of contract. 

Illinois law controls.

A. Fiduciary Duty

Avila alleges that CitiMortgage’s use of his homeowner’s 

insurance proceeds to pay down his mortgage loan was a 

 4 Avila’s initial complaint also alleged claims for conversion and negligence. These claims too were dismissed, and Avila does not challenge 

this aspect of the judge’s ruling. 
6 No. 14-1949

breach of its duty as a fiduciary. “[I]n order to state a claim 

for breach of fiduciary duty, [a complaint] must ... allege[]

that a fiduciary duty exists, that the fiduciary duty was 

breached, and that such breach proximately caused the 

injury of which the plaintiff complains.” Neade v. Portes, 

739 N.E.2d 496, 502 (Ill. 2000). The judge concluded that 

Avila’s complaint failed to allege facts sufficient to support

the existence of any fiduciary duty. We agree.

“A fiduciary relationship exists when there is a special 

confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to 

the interest of the one reposing the confidence.” Hensler v. 

Busey Bank, 596 N.E.2d 1269, 1274 (Ill. App. Ct. 1992). Some 

fiduciary relationships exist as a matter of law (e.g., the 

attorney-client relationship), but the mortgagor-mortgagee

relationship is not one of them.5 See Teachers Ins. & Annuity 

 

5 Where the alleged fiduciary relationship does not exist as a matter of 

law, Illinois requires that the facts from which the fiduciary relationship 

arises be “pleaded and proved by clear and convincing evidence.” 

Hensler v. Busey Bank, 596 N.E.2d 1269, 1275 (Ill. App. Ct. 1992). But 

federal pleading standards apply when considering a motion to dismiss 

a complaint that rests on diversity jurisdiction. See Windy City Metal 

Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 670–72 

(7th Cir. 2008) (discussing the contemporary framework for determining 

whether a federal procedural rule applies); Caraluzzi v. Prudential Sec., 

Inc., 824 F. Supp. 1206, 1213 (N.D. Ill. 1993) (holding that federal pleading 

standards control in a breach-of-fiduciary-duty action brought under 

Illinois law); 5 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC.

& PROC. CIV. § 1204 (3d ed. 2004) (“[The] suggesti[on] that state pleading 

tests must be followed insofar as the manner or the particularity of 

pleading in a federal court ... [is] erroneous ... .”). To survive CitiMortgage’s motion to dismiss, Avila only needed to plead facts that plausibly 

stated a claim for relief arising out of CitiMortgage’s violation of a 

fiduciary duty.
No. 14-1949 7

Ass’n of Am. v. La Salle Nat’l Bank, 691 N.E.2d 881, 888 (Ill 

App. Ct. 1998). Avila counters that the fiduciary relationship 

at issue in this case “is limited to the use of the insurance 

proceeds” and arose because “the insurance proceeds [were]

placed in the hands of [CitiMortgage],” thus “creat[ing] an 

escrow” under Illinois law.

An escrow is “[a] legal document or property delivered 

by a promisor to a third party to be held by the third party 

for a given amount of time or until the occurrence of a 

condition, at which time the third party is to hand over the 

document or property to the promisee.” BLACK’S LAW 

DICTIONARY (10th ed. 2014); see also Wiczer v. Wojciak, 

30 N.E.3d 670, 679 (Ill. App. Ct. 2015). In effect, an escrow 

reduces the degree of trust necessary to complete a deal by 

reducing the risk that one party won’t turn over money or 

documents as promised. Under Illinois law “[a]n escrow 

agent has a fiduciary duty to the party making the deposit 

and the party for whose benefit the deposit is made. As a 

result, an escrow agent must act impartially toward all 

parties.”6 Wells Fargo Bank Minn., N.A. v. EnviroBusiness, Inc., 

22 N.E.3d 125, 136 (Ill. App. Ct. 2014) (citation omitted). 

More specifically, an escrow agent’s “duty [is] to act only in 

accordance with the ... escrow instructions.” Int’l Capital 

Corp. v. Moyer, 806 N.E.2d 1166, 1170 (Ill. App. Ct. 2004). If 

under the mortgage agreement CitiMortgage was an escrow 

 6 Illinois courts have described escrow agents both as “special agents” 

and “trustees,” see Estate of Reinhold v. Mansfield, 412 N.E.2d 1146, 1149 

(Ill. App. Ct. 1980), but in either case the agent assumes fiduciary duties, 

see Albrecht v. Brais, 754 N.E.2d 396, 399 (Ill. App. Ct. 2001) (distinguishing an escrow agent from a trustee).
8 No. 14-1949

agent, then Avila has adequately alleged the existence of a 

fiduciary duty.

CitiMortgage objects that Avila’s escrow theory comes 

too late—he never used the word “escrow” in any of his 

three complaints and did not argue below that a fiduciary 

relationship between the parties arose based on an escrow.

There’s no question that Avila could have helpfully clarified 

his case if he had characterized the alleged fiduciary relationship as an escrow from the beginning. That said, plaintiffs are not required to plead specific legal theories. King v. 

Kramer, 763 F.3d 635, 642 (7th Cir. 2014). Avila’s complaint

alleged that a fiduciary duty existed because

“Citi[Mortgage] had the right to retain exclusive control over 

these insurance proceeds” and he “had no right to object to 

or interfere with Citi[Mortgage]’s determination regarding 

the satisfactory completion of the [repair] work.” These 

allegations gave CitiMortgage and the court adequate notice 

of the scope of, and basis for, the alleged fiduciary relationship. Cf. Vincent v. City Colleges of Chi., 485 F.3d 919, 923 (7th 

Cir. 2007) (holding that Rule 8(a)(2) of the Federal Rules of 

Civil Procedure “calls for a short and plain statement; the 

plaintiff pleads claims, not facts or legal theories”).

It’s true that Avila did not utter a word about an “escrow 

theory” in opposition to any of CitiMortgage’s Rule 12(b)(6) 

motions in the district court. Issues raised for the first time 

on appeal are generally treated as waived. County of 

McHenry v. Ins. Co. of the W., 438 F.3d 813, 820 (7th Cir. 2006) 

(explaining that new factual allegations may be considered 

on appeal if consistent with the complaint, but new issues

raised for the first time on appeal ordinarily will not be 
No. 14-1949 9

addressed). Even if we set the waiver aside, however, Avila’s 

escrow theory comes up short. 

“The dominant party must accept the responsibility, accept

the trust of the other party before a court can find a fiduciary 

relationship.” Pommier v. Peoples Bank Marycrest, 967 F.2d 

1115, 1119 (7th Cir. 1992) (emphases added); see also DeWitt 

Cnty. Pub. Bldg. Comm’n v. County of DeWitt, 469 N.E.2d 689, 

701 (Ill. App. Ct. 1984) (“Those who have in the law’s view 

been strangers remain such, unless both consent by word or 

deed to an alteration of that status.” (quoting S. Trust Co. v. 

Lucas, 245 F. 286, 288 (8th Cir. 1917))). Section 5 of the mortgage agreement does not explicitly create an escrow, and 

nothing in Avila’s complaint supports an inference that 

CitiMortgage affirmatively accepted the role of escrow 

agent. Still, the existence of an escrow, like any fiduciary 

relationship, can “be determined from the relations of the 

parties and their respective rights and duties.” Albrecht v. 

Brais, 754 N.E.2d 396, 399 (Ill. App. Ct. 2001). Avila argues 

that section 5 implicitly creates an escrow. In other words, he 

argues that the implied escrow is so self-evident that 

CitiMortgage accepted the duties of escrow agent merely by 

entering into the mortgage agreement. This is essentially a 

question of contract interpretation. 

The function of an escrow agent is to serve as intermediary, faithfully delivering the escrowed property in strict 

conformity with the instructions issued by the parties to the 

escrow agreement. See Wiczer, 30 N.E.3d at 679; Int’l Capital 

Corp., 806 N.E.2d at 1170. Avila says that CitiMortgage is the 

intermediary between his insurance carrier and himself. But 

that’s not an accurate characterization of CitiMortgage’s role.

The insurance carrier was not party to the mortgage agree-
10 No. 14-1949

ment and thus could not be the grantor in any escrow created by section 5. The insurance carrier’s involvement was 

completed as soon as it issued the check for the policy 

proceeds; it gave no instructions about how CitiMortgage 

should use the money, and without instructions there can be 

no escrow.7

Instead, section 5 is an agreement between Avila and 

CitiMortgage alone. And as a term of the contract, it exists 

almost exclusively for CitiMortgage’s benefit. Without 

section 5, Avila could use the insurance proceeds to repair 

his house or pay down his loan at his discretion. The mortgage agreement shifts that discretion to CitiMortgage to

ensure that repairs are “economically feasible,” that its 

“security is not lessened,” and that it will have “an opportunity to inspect such Property to ensure the work has been 

completed to [its] satisfaction.”8 Avila suggests that these are 

the escrow instructions, but it’s not consistent with a typical 

escrow arrangement to give an escrow agent authority to 

make self-interested and discretionary decisions about when 

and where to disburse the escrowed funds. Contract law 

imposes an implied duty of good faith on parties empowered by the contract to exercise discretion, see RBS Citizens, 

 7 Avila’s homeowner’s insurance policy is not in the record, but any 

conditions it might impose on the use of the insurance proceeds are 

independent of the obligations imposed on CitiMortgage in section 5 of 

the mortgage agreement.

8 The fact that Avila will also benefit from the insurance funds in the 

sense that they will ultimately be used either to repair his house or pay 

down his mortgage loan does not alter the conclusion that the purpose of 

the arrangement in section 5 is to enable CitiMortgage to protect its own 

interests, not Avila’s. 
No. 14-1949 11

Nat’l Ass’n v. RTG-Oak Lawn LLC, 943 N.E.2d 198, 206–07 (Ill. 

App. Ct. 2011), but that duty doesn’t create a fiduciary 

relationship. Simply put, nothing in section 5 indicates that 

CitiMortgage assumed a duty to act for Avila’s benefit in 

place of its own. See RESTATEMENT (THIRD) OF TRUSTS § 2 

cmt.b (2003) (“Despite the differences in the legal circumstances and responsibilities of various fiduciaries, one 

characteristic is common to all: a person in a fiduciary 

relationship to another is under a duty to act for the benefit 

of the other as to matters within the scope of the relationship.”). 

There’s another important way in which CitiMortgage

differs from a typical escrow agent: While “[a]n escrow 

agent ... is not vested with title to the property,” Albrecht, 

754 N.E.2d at 399, CitiMortgage did have title to the insurance proceeds. CitiMortgage was a loss payee under the 

insurance policy, as well as the beneficiary of the insurance 

contract’s standard mortgage clause.9 See GRANT S. NELSON &

DALE A. WHITMAN, REAL ESTATE FINANCE LAW 173 (5th ed.

2007) (“The effect of the [standard mortgage] provision is to 

insure the mortgagee’s interest, as fully and to the same 

extent as if the mortgagee had taken out a separate policy 

directly from the insurer ... .”); Old Second Nat’l Bank v. Ind. 

Ins. Co., 29 N.E.3d 1168, 1175 (Ill. App. Ct. 2015). In other 

words, CitiMortgage was not merely a custodian of Avila’s 

money; the insurance proceeds were issued to CitiMortgage 

directly, and it had a property interest in them. While it’s 

 9 Avila emphasizes that section 5 says that CitiMortgage will “hold” the 

insurance proceeds. That single use of the term does not alone change 

the formal legal relationships established by or mandated in the mortgage agreement.
12 No. 14-1949

common for escrow agents to be compensated out of the 

funds in the escrow, it’s not consistent with an escrow for the 

agent to have title to those funds while they remain in escrow.

This conclusion is bolstered by the fact that CitiMortgage

expressly agreed to the creation of escrows (and to be an

escrow agent) elsewhere in the mortgage agreement. Specifically, section 3 allows for the use of escrows to pay for 

property taxes, lease payments, insurance premiums, and 

community association dues. The “Definitions” section of 

the mortgage contract defines “Escrow Items” solely as 

“those items that are described in [s]ection 3.”

Comparing sections 3 and 5 is telling. Section 3 allows 

third-party banks to collect money from Avila and disburse 

it to the relevant tax authorities, insurance carriers, and 

homeowner’s associations in accordance with the instructions agreed to by Avila and CitiMortgage. These “instructions” are clear and the payment amounts are fixed by law 

or contract. Distribution of the escrowed funds is not subject 

to the escrow agent’s discretion, nor is the agent entitled to 

determine whether a given use of the funds furthers its own 

economic interests. Finally, the intermediary bank does not 

have an independent property interest in the funds—it’s just

a custodian until the money can be paid out in accordance 

with the escrow instructions.

Section 3 expressly authorizes CitiMortgage to serve as

the escrow agent, assuming it is “an institution whose 

deposits are insured by a federal agency.” But the important 

point is that its function is simply to possess the funds and 

disburse them in accordance with the escrow instructions. 

There can be no conflict of interest between Avila and 
No. 14-1949 13

CitiMortgage with respect to the section 3 escrows because 

both parties share a common interest in ensuring that the 

taxes, premiums, and fees are paid on time. Also, section 3

(unlike section 5) requires CitiMortgage, if it’s serving as 

escrow agent, to provide an annual accounting of the escrowed funds. Cf. Midwest Decks, Inc. v. Butler & Baretz 

Acquisitions, Inc., 649 N.E.2d 511, 517 (Ill. App. Ct. 1995)

(noting, in the course of finding that no escrow existed, that 

“the purchase agreement in the case at bar did not call for 

setting up an escrow account or for segregating the funds”).

In sum, while the parties clearly intended for section 5 to 

govern their interlocking contractual obligations with respect to Avila’s homeowner’s insurance policy, Avila has not 

plausibly alleged that CitiMortgage assumed any additional, 

extra-contractual duties of a fiduciary nature. See Zelickman 

v. Bell Fed. Sav. & Loan Ass’n, 301 N.E.2d 47, 51 (Ill. App. Ct. 

1973) (holding that a fund from which the lender paid 

insurance premiums on behalf of the homeowner was not a 

trust but rather “an additional contractual security device for 

the protection of defendant’s rights as creditor, specifically 

agreed to in the contract between the parties”). The claim for 

breach of a fiduciary duty was properly dismissed.

B. Breach of Contract

Avila’s breach-of-contract claim is based on the following 

language from section 5: “Unless Lender and Borrower 

otherwise agree in writing, any insurance proceeds ... shall

be applied to restoration or repair of the Property, if the 

restoration or repair is economically feasible and Lender’s 

security interest is not lessened.” (Emphasis added.) Because 
14 No. 14-1949

CitiMortgage never indicated that repairing the house was

economically infeasible or would harm its security interest, 

Avila argues that it breached the mortgage agreement. He 

also points out that the other three conditions listed in 

section 5 that would permit CitiMortgage to use the insurance proceeds to pay down the loan—abandonment, the 

failure to respond to an insurance settlement, and foreclosure—did not occur.

The judge concluded that Avila could not prevail on his 

breach-of-contract claim even assuming CitiMortgage had, in 

fact, breached section 5. The elements of a claim for breach of 

contract are (1) the existence of a valid and enforceable 

contract; (2) substantial performance by the plaintiff;

(3) breach of contract by the defendant; and (4) resultant 

injury to the plaintiff. W.W. Vincent & Co. v. First Colony Life 

Ins. Co., 814 N.E.2d 960, 967 (Ill. App. Ct. 2004). The judge

reasoned that since Avila had defaulted on his mortgage 

payments prior to CitiMortgage’s alleged misuse of the 

insurance proceeds, he fell short on the “substantial performance” element of the claim. See RESTATEMENT (SECOND) OF 

CONTRACTS § 237 (1981) (“[I]t is a condition of each party’s 

remaining duties to render performances to be exchanged 

under an exchange of promises that there be no uncured 

material failure by the other party to render any such performance due at an earlier time.”). Avila responds that the 

parties intended that section 5 would remain enforceable 

even after a default by the borrower.

Section 22 of the mortgage agreement describes

CitiMortgage’s remedies in the event of a default by the 

homeowner. Specifically, the lender is entitled to accelerate a

loan and initiate judicial foreclosure proceedings, but only 
No. 14-1949 15

after giving the homeowner notice of the alleged default and

providing 30 days to cure it. (Acceleration in turn triggers 

the borrower’s right to reinstate the mortgage agreement if 

certain conditions are met.) Avila argues that because section 22 establishes a specific process for dealing with a 

default, the homeowner’s first default would not make the 

mortgage agreement thereafter wholly unenforceable. And 

while CitiMortgage could have accelerated Avila’s loan in 

response to his default, applying the insurance proceeds to 

pay down his loan balance was not a remedy for missed 

payments.

That’s a reasonable reading of the mortgage contract. Section 5 appears to envision the survival of its terms after a 

default. As we’ve explained, that section gives CitiMortgage

the right to apply insurance proceeds toward the outstanding loan balance under certain specified conditions, including the homeowner’s abandonment of the property or 

foreclosure by CitiMortgage. Abandonment is a default per 

se under certain circumstances (under section 6 of the 

agreement), and foreclosure necessarily follows a default. 

These provisions of section 5 would be superfluous if any 

default immediately gave CitiMortgage the right to apply an 

insurance payout toward the mortgage loan. See Cent. Ill. 

Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004) (“[A] 

contract[] is to be construed as a whole, giving effect to every 

provision, if possible, because it must be assumed that every 

provision was intended to serve a purpose.”).

Indeed, CitiMortgage concedes that the mortgage agreement does not become a nullity at the moment of default, 

though it apparently thinks that the contract becomes entirely unenforceable (from the breaching party’s perspective) from 
16 No. 14-1949

that point forward. But CitiMortgage’s position would give it 

a carte blanche of indeterminate duration to hold Avila to his 

contractual obligations while its own performance is subject 

to nothing but its own whims. 

Contracting parties are free to negotiate in advance how 

breaches should be handled. For example, a nondefaulting 

party cannot recover in excess of the amount it agreed to in a 

liquidated damages clause, regardless of its actual damages. 

See Berggren v. Hill, 928 N.E.2d 1225, 1229 (Ill. App. Ct. 2010). 

A contrary holding would raise equitable concerns similar to 

those addressed by the election-of-remedies principle, which 

holds that

[i]f a party to a contract breaks it, the other party can abandon the contract (unless the breach 

is very minor) and sue for damages, or it can 

continue with the contract and sue for damages. But if it makes the latter election, it is bound 

to the obligations that the contract imposes on 

it.

Emerald Invs. Ltd. P’ship v. Allmerica Fin. Life Ins. & Annuity 

Co., 516 F.3d 612, 618 (7th Cir. 2008) (citations omitted); see 

also Omni Partners v. Down, 614 N.E.2d 1342, 1346 (Ill. App. 

Ct. 1993) (“[I]f the injured party chooses to continue performance, he has doubtless lost his right to stop performance.”); 

14 SAMUEL WILLISTON & RICHARD A. LORD, WILLISTON ON 

CONTRACTS § 43:15 (4th ed. 2014) (“[B]y outward manifestations indicating that the defective performance has been 

accepted, the obligor has sent the unmistakable signal—by 

conduct, rather than by an express promise—that it still 

considers the contract to be binding.”).
No. 14-1949 17

In light of the bargained-for remedies for default contained in section 22 of the mortgage agreement, and the 

presumption against superfluity as applied to section 5, 

Avila has stated a facially plausible claim that the parties did 

not intend that his missed payments preclude him from 

enforcing section 5 of the agreement. Though CitiMortgage 

could have accelerated Avila’s loan in response to his missed 

mortgage payments, it did not do so.

CitiMortgage cites Hukic v. Aurora Loan Services, 588 F.3d 

420 (7th Cir. 2009), for the proposition that a borrower’s

breach makes him powerless to enforce a mortgage agreement. That’s a significant overreading of the opinion. Hukic’s 

mortgage agreement required him to provide his lender 

with proof that he was paying his property taxes and insurance premiums. If he didn’t, the lender was entitled to pay 

the taxes and insurance itself and then add the costs to the 

monthly mortgage payment. Id. at 433. Hukic paid his taxes 

and premiums but ignored the lender’s repeated requests for

proof of payment and then sued when the lender paid the 

bills on his behalf. Id. We affirmed the dismissal of Hukic’s 

breach-of-contract claim. Id. As we explained in a later case, 

“Hukic’s failure to comply with his contractual obligations 

was material and absolved the servicers from liability because it directly caused the servicers’ actions that were the 

basis of his own breach of contract claims.” Catalan v. GMAC 

Mortg. Corp., 629 F.3d 676, 692 (7th Cir. 2011).

Here, Avila’s claim is that CitiMortgage’s use of the insurance proceeds to reduce his loan was not a contractually 

permitted response to his default. In Hukic the lender’s 

response to the borrower’s default was expressly permitted. 

The two cases are not analogous. 
18 No. 14-1949

CitiMortgage also claims that Avila’s complaint is defective unless it asserts his compliance with each and every 

affirmative duty imposed on him by the mortgage agreement. We disagree, for essentially the same reasons discussed above; Avila has pleaded a facially plausible claim

that the mortgage agreement survived his default. The 

possibility that Avila has other unknown (and uncured)

defaults does not necessarily defeat his claim.

We do not, of course, express any view on the ultimate 

merits of Avila’s claim. CitiMortgage may have contract 

defenses that eventually prove decisive. Perhaps Avila’s suit 

should be barred because he breached the contract by filing 

suit without providing the lender with notice and a “reasonable period” in which to “take corrective action,” as required 

by section 20. Perhaps CitiMortgage can muster evidence 

that the parties did not intend for section 22 to be conclusive 

as to CitiMortgage’s remedies in the face of a default and in 

fact wanted the breaching party to be precluded from enforcing the mortgage agreement. Or perhaps CitiMortgage can 

revive its argument—rejected in passing by the district 

court—that Avila suffered no economic damages because the 

insurance proceeds reduced his loan balance. None of these 

potential defenses have been litigated, and they were not 

part of the judge’s order dismissing the case. CitiMortgage is 

free to raise them on remand.

For the foregoing reasons, we AFFIRM the dismissal of the 

claim for breach of fiduciary duty, REVERSE the dismissal of 

the breach-of-contract claim, and REMAND for further proceedings consistent with this opinion.